DIRECTV 2004 Annual Report Download - page 110

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
On August 27, 2004, the U.S. Bankruptcy Court, District of Maine, entered an order approving among other things, the
acquisition transaction with Pegasus described above in Note 3, as well as a Global Settlement Agreement pursuant to which all
pending litigation between DIRECTV U.S., us, the NRTC and Pegasus was settled and mutual releases of claims were affected.
Pegasus had filed a voluntary petition for Chapter 11 bankruptcy in such court following entry of judgment on May 24, 2004 in
favor of DIRECTV U.S. for approximately $63 million in a case arising out of Pegasus’ breach of the parties’ Seamless
Marketing Agreement. This judgment was stayed under applicable bankruptcy law, and Pegasus also had filed various claims in
the bankruptcy proceeding against DIRECTV U.S., us and the NRTC. As part of the purchase price paid by DIRECTV U.S. in
the transactions with Pegasus, DIRECTV U.S. received credit for the $63 million judgment. As a result of the settlement and
release, all previously pending litigation discussed above between DIRECTV U.S., the Company and Pegasus has been
dismissed with prejudice.
On October 18, 2004, Darlene filed suit in the circuit court for Miami-Dade County, Florida, against us and certain of our
subsidiaries (including DLA LLC) News Corporation, and others, or collectively Defendants. We and certain of the other
defendants have removed this matter to the U.S. District Court for the Southern District of Florida. The suit alleges fraud and
violation of fiduciary, contractual and other duties owed Darlene and to DLA LLC by one or more of the Defendants. Darlene
owns approximately 14.1% of DLA LLC and we own the remaining interest.
Among other things, Darlene alleges that one or more of the Defendants engaged in self-dealing for several years, and the Sky
Transactions were negotiated in a manner and yielded a result that was unfair to DLA LLC and its members. Darlene further
alleges that we entered into an oral put agreement which would have required DLA LLC to acquire Darlene’s interest in DLA
LLC based on a specific pricing formula and that Darlene was fraudulently induced to release its rights under that put and other
rights. Darlene seeks injunctive relief to preclude DLA LLC from consummating the Sky Transactions, $1 billion in damages
and other relief. As part of the Sky Transactions, we have agreed to indemnify News Corporation against certain claims,
including claims by Darlene against News Corporation. We believe Darlene’s claims are without merit and intend to vigorously
defend against these claims.
On June 4, 2002, DIRECTV, Inc., a wholly-owned subsidiary of DIRECTV Holdings LLC, and General Electric Capital
Corporation, or GECC, executed an agreement to settle, for $180 million, a claim arising from a contractual arrangement
whereby GECC managed a credit program for consumers who purchased DIRECTV programming and related hardware. As a
result, in 2002, the provision for loss related to this matter was increased by $122.0 million, of which $48.0 million was
recorded as a charge to “General and administrative expenses” and $74.0 million was recorded as a charge to “Interest expense”
in the Consolidated Statements of Operations.
Income Tax Matters
In connection with an IRS audit for the tax years 1991 through 1994, the IRS proposed adjustments to the determination and
allocation of the purchase price with respect to a prior business acquisition which could result in additional tax and interest of
approximately $50.0 million. We filed an administrative protest of these adjustments and engaged in discussions with the
Appeals office of the IRS. These discussions did not result in a settlement and we anticipate that we will be required to file suit
in order to resolve this dispute.
As part of the sale of our interest in PanAmSat, we agreed to indemnify PanAmSat for certain taxes related to periods ending on
or prior to the day of the closing in amounts equal to 80% of the first $75.0 million of such taxes and 100% of any such taxes in
excess of the first $75.0 million. PanAmSat has outstanding tax claims
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